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KBC Group 3Q and 9M 2019 results Press presentation
Johan Thijs, KBC Group CEORik Scheerlinck, KBC Group CFO
More detailed analyst presentation available at www.kbc.com
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This presentation is provided for information purposes only. It does not constitute an offer to sell or thesolicitation to buy any security issued by the KBC Group.
KBC believes that this presentation is reliable, although some information is condensed and thereforeincomplete. KBC cannot be held liable for any loss or damage resulting from the use of the information.
This presentation contains non-IFRS information and forward-looking statements with respect to thestrategy, earnings and capital trends of KBC, involving numerous assumptions and uncertainties. Thereis a risk that these statements may not be fulfilled and that future developments differ materially.Moreover, KBC does not undertake any obligation to update the presentation in line with newdevelopments.
By reading this presentation, each investor is deemed to represent that it possesses sufficient expertiseto understand the risks involved.
Important information for investors
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Key takeaways for KBC Group3Q 2019 financial performance*
ROE 15%*
Cost-income ratio 59% (adjusted for specific items)
Combined ratio 92% Credit cost ratio 0.10% Common equity ratio 15.4%** (B3, DC, fully loaded)
Leverage ratio 6.0% (fully loaded)
NSFR 135% & LCR 140%
9M19
Commercial bank-insurance franchises in coremarkets performed well
Customer loans and customer deposits increasedin most of our core countries
Higher net interest income and stable net interestmargin
Higher net fee and commission income
Lower net result from financial instruments atfair value (mainly due to poor dealing roomincome) and lower net other income
Excellent sales of non-life and life insurance y-o-y
Strict cost management
Lower net impairments on loans
Solid solvency and liquidity
An interim dividend of 1 EUR per share (as advance payment on the total 2019 dividend) will be paid on 15 November 2019
* Comparisons against the previous quarter unless otherwise stated
Good net result of 612mEUR in 3Q19 * when evenly spreading the bank tax throughout the year
** 15.9%, when including 9M19 net result taking into account thepayout ratio in FY2018 of 59% (dividend + AT1 coupon)
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KBC GroupConsolidated results
3Q and 9M 2019 performance
5
KBC Group Good net result of 612m in 3Q 2019
Quarterly net result
Amounts in millions of EUR
2,1761,948
9M199M189M17
1,787
9M169M15
1,7421,776
701621
430
663
612
3Q18
74582
1Q194Q18 3Q192Q19
One-off gain ČMSS
9 Months net result (YTD)
6Amounts in millions of EUR
BE BU CZ BU IM BU
Net result per business unitOverall positive contribution of the business units
409
361
176
388368
3Q18 4Q18 2Q191Q19 3Q19
168 170 177
166
15982
2Q193Q18 4Q18 1Q19 3Q19
248
27 13 18 11 12
5149 25 55 45
32
1114
9
31
1913
2923
141
4Q18 2Q193Q18 1Q19
4
3Q19
9370
10485
SlovakiaBulgariaIreland
HungaryOne-off gain ČMSS
7
NIM 1.94%Stabilised q-o-q and decreased by 4 bps y-o-y, the latter duemainly to the negative impact of lower reinvestment yields,pressure on loan margins on total outstanding portfolio and anincrease of the interest bearing assets
NII increased by 4% q-o-q and by 3% y-o-y. Note that NIIbanking increased even by 4% q-o-q and by 6% y-o-y.The q-o-q increase was driven primarily by:(+) continued good loan volume growth, higher margins onnew loan production in most core countries, 3-month fullconsolidation of ČMSS (+14m EUR q-o-q), small additionalpositive impact of short-term interest rate increase in theCzech Republic, higher number of days, higher NII insurance(coupon on inflation linked bonds fully booked in 3Q) andslightly higher netted positive impact of ALM FX swapspartly offset by:(-) lower reinvestment yields in our euro area core countriesand pressure on loan margins on total outstanding portfolioin most core countries
991 1 007 1 043
128 114 117
2Q19
14
3Q18
171 136
12
3Q19
1 132 1 174
Net interest incomeHigher net interest income (NII) and stable net interest margin (NIM)
Amounts in millions of EUR
Quarter 3Q18 2Q19 3Q19
NIM 1.98% 1.94% 1.94%
NII - netted positive impact of ALM FX swaps *
NII - Insurance
NII - Banking (incl. holding-company/group)
Net Interest Income
Net interest margin**
* From all ALM FX swap desks** NIM is calculated excluding the dealing room and the net positive impact of ALM FX swaps & repos
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Net fee and commission income (444m EUR)Up by 2% q-o-q and by 5% y-o-yQ-o-q increase was the result of:• Net F&C income from Asset Management services increased by
2% q-o-q as a result of both higher management and entry feesfrom mutual funds and unit-linked life insurance products
• Net F&C income from banking services increased by 3% q-o-q duemainly to seasonally higher fees from payment services and fullconsolidation of ČMSS (+4m EUR q-o-q), partly offset by lowersecurities-related fees
• Distribution costs rose by 4% q-o-q due chiefly to highercommission paid linked to increased non-life insurance sales
Assets under management (212bn EUR)• Increased by 1% q-o-q and roughly stabilised y-o-y• The mutual fund business has seen net outflows in 3Q19, mainly
in investment advice
Net fee and commission incomeHigher net fee and commission income
Net fee and commission income
Assets under management (AuM)
Amounts in millions of EUR
Amounts in billions of EUR
424 435 444
3Q193Q18 2Q19
213 210 212
3Q18 3Q192Q19
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Up by 9% y-o-y mainly thanks to agood commercial performance in allmajor product lines in our core marketsand tariff increases
Non-life insuranceNon-life premium income up y-o-y and good combined ratio
Amounts in millions of EUR
770 840
403 440
1 280
9M18 9M19
Q3
6M
1 173
+9%
Non-Life(Gross earned premium) Combined ratio non-life
FY1Q
93%
1H 9M
90% 88% 92% 88%88% 92%
20182019
The non-life combined ratio for 9M19 amounted to 92%, agood number despite higher technical charges due mainly tolarge claims (storm and fire, especially in 1Q19) and areassessment on claims provisions in 2Q19 (-16m EUR),partly offset by ceded reinsurance result
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Life insuranceLife sales up y-o-y
Amounts in millions of EUR
Life sales
Sales of Life insurance products decreased by 12% q-o-q and rose by 5% y-o-y• The q-o-q decrease was driven by both lower sales of guaranteed interest products and
unit-linked products in all countries• The y-o-y increase was driven entirely by both higher sales of guaranteed interest
products and unit-linked products in Belgium• Sales of unit-linked products accounted for 40% of total life insurance sales in 3Q19
153 198 161
230261
242
383
3Q18 3Q192Q19
459403
Guaranteed interest rate products Unit-linked products
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Net result from financial instruments at fair valueLower fair value result
79
-2
-463Q18 2Q19 3Q19
Amounts in millions of EUR
The lower q-o-q figures for net result from financial instruments at fair value wereattributable mainly to:
• a negative change in market, credit and funding value adjustments (mainly asa result of changes in the underlying market value of the derivatives portfoliodue to lower long-term interest rates and slightly increasing counterpartycredit spreads and KBC funding spread)
• poor dealing room & other income• slightly lower net result on equity instruments (insurance)partly offset by• a positive change in ALM derivatives
Fair value result
12
Net other incomeNet other income slightly below normal run rate
Amounts in millions of EUR
56
133
43
2Q193Q18 3Q19
Net other income
Net other income amounted to 43m EUR, this is slightly lower than the normal runrate of around 50m EUR due mainly to an additional impact of the tracker mortgagereview of -18m EUR (of which a -14m EUR provision for a potential sanction). Notethat 2Q19 was positively impacted by a one-off gain of 82m EUR related to therevaluation of the existing 55% stake in ČMSS
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Operating expenses Strict cost management
956 957 947
2Q19
98126
3Q18
30 28988
3Q19
975
Operating expenses excl. bank taxBank Tax (gross)
• Cost/Income ratio (banking) adjusted for specific items: MtM ALM derivatives and one-off items are fully excluded, but bank taxes are included pro-rata
Amounts in millions of EUR
FY18 9M19
57% 59%Cost/Income ratio*
Operating expenses excluding bank tax decreased by 1% q-o-q primarily as a result of:• lower staff expenses, despite wage inflation in most
countries• 12m EUR negative one-offs in 2Q19 (of which 10m
management reorganisation costs in Belgium) versus a 1mEUR negative one-off in 3Q19
• seasonally lower ICT costspartly offset by:• full consolidation of ČMSS (11m EUR in 3Q19 versus 5m in
2Q19)
Excluding the full consolidation of ČMSS, bank tax, FX effectand one-off costs, operating expenses in 9M19 rose by roughly0.3% y-o-y
Total bank taxes (including ESRF contribution) are expected toincrease from 462m EUR in FY18 to 494m EUR in FY19.
Operating expenses
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Asset impairmentsLower asset impairments, benign credit cost ratio
Amounts in millions of EUR
FY18 9M19
-0.04% 0.10%
Credit cost ratio (YTD)
Lower asset impairments q-o-q, mainly to:• lower loan loss impairments in Belgium and Slovakia• net loan loss impairment reversals in Ireland (7m EUR)
and Group Centre (10m EUR)partly offset by:• slightly higher loan loss impairments in the Czech
Republic, Bulgaria and Hungary
Asset impairment(negative sign is write-back)
6
3625
-8
1
3Q18 2Q19
440
3Q19-2
26
Other impairmentsImpairments on financial assets at AC and FVOCI
The credit cost ratio amounted to 0.10% in 9M19
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KBC Group
Balance sheet, capital and liquidity
16
Y-O-Y ORGANIC* VOLUME GROWTH
4%
BE
* Volume growth excluding FX effects and divestments/acquisitions** Loans to customers, excluding reverse repos (and bonds)*** Customer deposits, including debt certificates but excluding repos**** Total customer loans in Bulgaria: new bank portfolio +11% y-o-y, while legacy -26% y-o-y
Deposits***Loans**
3%3%3%
Retail mortgages
Deposits***Retail mortgages
Loans**
5% 5%
2%
Loans****
6%
Retail mortgages
6%
9%
Deposits***
Deposits***Loans** Retail mortgages
2%
7%
10%
5%
Loans**
9%
Retail mortgages
Deposits***
5%
Loans**
3%
Retail mortgages
Deposits***
3%
1%
Retail mortgages
Loans**
4%
Deposits***
4% 4%
CR
Balance sheetLoans and deposits continue to grow in most core countries
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• Payout ratio policy (i.e. dividend + AT1 coupon) of at least 50% of consolidated profit• Interim dividend of 1 EUR per share in November of each accounting year as an advance on the total dividend• On top of the payout ratio of 50% of consolidated profit, each year, the Board of Directors will take a decision,
at its discretion, on the distribution of the capital above the ‘Reference Capital Position‘
Our unchanged dividend policy / capital distribution to shareholders
More stringent ECB approach re. dividend policy
• We can apply for interim profit recognition based on the ECB Umbrella Decision (Decision EU 2015/656 of 4February 2015), which states that the dividend to be deducted is the highest of (i) maximum pay-out accordingto dividend policy, (ii) average pay-out ratio over the last 3 years or (iii) last year’s pay-out ratio
• The ECB interprets ‘at least 50%’ as a range with an upper end of 100% pay-out
More stringent ECB approach since 1Q19, based on the ECB Umbrella Decision
• In anticipation of further clarification and reaching agreement upon our approach re. the interim profitrecognition process going forward, no IFRS interim profit has been recognised for 9M19. This resulted in a CET1ratio of 15.4% at the end of 9M19
• When including 9M19 net result taking into account 59% pay-out (dividend + AT1 coupon), in line with thepayout ratio in FY2018, the CET1 ratio at KBC Group (Danish Compromise) amounted to 15.9% at the end of9M19
What does this mean in practice in the meantime?
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Common equity ratioStrong capital position
10.7% fully loadedregulatory minimum
1H199M18
15.7%16.0%
FY18
16.0%
1Q19 9M19
15.6% 15.4%
14.0% ‘OwnCapital Target’
The common equity ratio slightly decreased from15.6% at the end of 2Q19 to 15.4%* at the end of3Q19 based on the Danish Compromise. Thisclearly exceeds the minimum capitalrequirements** set by the competent supervisorsof 10.7% fully loaded. Our ‘Own Capital Target’remained at 14.0% for 2019 after the update ofthe median CET1 ratio of our peer group (basedon FY18 numbers)
Fully loaded Basel 3 CET1 ratio at KBC Group(Danish Compromise)
* See previous slide…Is 15.9% when including 9M19 net resulttaking into account the payout ratio in FY2018 of 59% (dividend +AT1 coupon)
** Excludes a pillar 2 guidance (P2G) of 1.0% CET1
* **
* No IFRS interim profit recognition given more stringent ECB approach
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Liquidity ratiosLiquidity continues to be solid
KBC Group’s liquidity ratios
FY18 9M19
136% 135%
NSFR*
140%
FY18 9M19
139%
LCR**
Regulatory Requirement ≥ 100%
* Net Stable Funding Ratio (NSFR) is based on KBC’s interpretation of the proposal of CRR amendment** Liquidity Coverage ratio (LCR) is based on the Delegated Act requirements. From EOY2017 onwards, KBC discloses 12 months average LCR inaccordance to EBA guidelines on LCR disclosure
20
KBC Group More of the same... but differently ...
21
Inbound contacts via omni-channel and digital channel* at KBC Group** amounted to 80% in 3Q19… already reaching the Investor Visit target (≥ 80% by 2020)
• Clients interacting with KBC through at least one of the non-physical channels (digital or through a remote advisory centre), possibly in addition to contact through physical branches. This means that clients solely interacting with KBC through physical branches (or ATMs) are excluded
** Bulgaria & Postal Savings Bank (PSB) in Czech Republic, both out of scope for Group target
22
Realisation of omnichannel strategy* – client mix in 3Q19
22%22%
56%
Omnichannel clients
Digital only clients
Contact Centre only clients
Branch or ATM only clients**
BELGIUMCZECH
REPUBLIC SLOVAKIA HUNGARY BULGARIA***IRELAND
33%
54%
13%
47%
43%
10%27%
47%
26%
65%
28%
5%2%
27%
46%
15%
12%
* Clients interacting with KBC through at least one of the non-physical channels (digital or through a remote advisory centre), possibly in addition to contact through physical branches. This means that clients solely interacting with KBC through physical branches (or ATMs) are excluded
** Might be slightly underestimated*** Bulgaria out of scope for Group target
23
KBC Group 3Q and 9M 2019
Looking forward
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Looking forward
Economicoutlook
Group guidance
Business units
In line with global economic developments, the European economy is currently slowingdown. Decreasing unemployment rates and growing labour shortages in some Europeaneconomies, combined with solid wage inflation, are likely to continue underpinning privateconsumption. Investment is also likely to remain supportive for growth. The main factorsthat could substantially impede European economic sentiment and growth remain the riskof further economic de-globalisation, including an escalation of trade conflicts, Brexit andpolitical turmoil in some euro area countries
Solid returns for all Business Units B4 impact (as of 1 January 2022) for KBC Group estimated at roughly 8bn EUR higher RWA
on fully loaded basis at end 2018, corresponding with 9% RWA inflation and -1.3% pointsimpact on CET1 ratio
Next to the Belgium and Czech Republic Business Units, the International Markets BusinessUnit has become a strong net result contributor (although 2018 figures were flattered bynet impairment releases)
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We put our clients centre stage and they keep counting on us to help them realise and protect their dreams. We do this proactively and work together
to help build society and create sustainable growth. We are genuinely grateful for the confidence they put in us.
Johan Thijs, KBC Group CEO